Stocks gain as optimism increases about rate cut

By Lauren Villagran
Associated Press

NEW YORK » Wall Street shook off early uncertainty to close moderately higher yesterday as a series of mixed economic reports managed to make investors more optimistic about the chances for an interest rate cut.

The market was uneasy after the Mortgage Bankers Association said homeowners beginning the foreclosure process in the second quarter reached a record 0.65 percent.

It was the third consecutive quarter that the figure reached an all-time high. Though investors want growth to be slow enough to merit a rate cut when the Federal Reserve meets Sept. 18, they don't want to see the economy weaken to the point of recession.

But investors gleaned some reason for optimism from comments from Dallas Federal Reserve President Richard Fisher, who said inflationary pressures are "increasingly well behaved," and that the central bank is "listening carefully" to business conditions. St. Louis Fed President William Poole made similar comments earlier in the day.

"They didn't explicitly say they were going to cut rates, but some of the talk from the day gave reason to believe they may be leaning that way," said Todd Salamone, director of trading at Schaeffer's Investment Research.

The Dow Jones industrial average rose 57.88, or 0.44 percent, to 13,363.35, after earlier wobbling in and out of positive territory.

Bonds fell as stocks recovered ground. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose to 4.51 percent from 4.47 percent late Wednesday. The dollar was lower against most other major currencies, while gold prices jumped.

The credit markets, whose problems caused the volatility on Wall Street over the past month, remain tight. The New York Fed, which carries out the central bank's market operation, injected a total of $31.25 billion through three repurchase agreements Thursday -- the largest amount the Fed has injected in weeks -- to help keep the markets liquid.

The Fed also reported that about 3 percent of asset-backed commercial paper, a type of bond companies sell for quick cash, was unable to be rolled over in the week ended Wednesday.

A barrel of light, sweet crude rose 57 cents to $76.30 on the New York Mercantile Exchange.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to about 1.28 billion shares, up from 1.25 billion on Wednesday.